With some deferment in jewellery purchases last year, domestic growth of cut and polished diamonds will remain strong in the long term, driven by demand from increasing female working-class population and the growing consciousness of branded jewellery, Care Rating said in a research note. In fact, the trend is such that diamond sellers have made this a new marketing tactic convincing women to buy their own diamonds. The note further said purchasing power is increasing in Tier-I and II cities boosting the demand for diamond jewellery. Moreover, the on-going wedding season may spur demand if domestic prices see any moderation. The segment, however, is still facing challenges in the form of built-up inventory levels as the demand for polished diamonds is muted.
Meanwhile, the current fiscal has so far been a disappointment for the Indian gems and jewellery industry. While the industry saw a yearly decline in growth of exports for nine consecutive months in FY20, the imports grew in three nine months till now. What’s even more troubling is the stress on working capital with small players. “Lengthy operating cycles and working capital intensive nature of the business is an inherent characteristic of the gems and jewellery industry,” said the research note. The manufacturers faced the double whammy of high gold prices in FY20 constraining domestic jewellery retailers along with reduced lending to small scale players. As a result of escalated gold prices in the domestic market, buyers delayed purchases in recent months.
After a major scam in January 2018, bank lending to this industry is on a decline. In FY19, incremental credit to this industry declined by Rs 6 billion, which further declined by Rs 107 billion in the first eight months of this fiscal. As of November 2019, outstanding credit of this industry stood at Rs 613 billion. Apart from stressed funding from banks, increasing penetration of synthetic diamonds and competition from other competing fashion items/discretionary spends have also put pressure on demand and profitability.
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Source: Financial Express